Profits with Principles: Seven Strategies for Delivering Value with Values

Overview

At a time when unethical business practices continue to dominate the business press, PROFITS WITH PRINCIPLES offers persuasive proof that when businesses combine profit making with a concern for values and the greater good, they do better in the marketplace than those that concentrate only on the bottom line.

In PROFITS WITH PRINCIPLES, Ira A. Jackson and Jane Nelson show the quantifiable and enduring business advantage to “doing the right ...

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Overview

At a time when unethical business practices continue to dominate the business press, PROFITS WITH PRINCIPLES offers persuasive proof that when businesses combine profit making with a concern for values and the greater good, they do better in the marketplace than those that concentrate only on the bottom line.

In PROFITS WITH PRINCIPLES, Ira A. Jackson and Jane Nelson show the quantifiable and enduring business advantage to “doing the right thing.” The companies profiled in PROFITS WITH PRINCIPLES–including Starbucks, Citigroup, Alcoa, General Motors, General Electric, Dupont, and Dell–come from different industries and have implemented different strategies to build trust and gain a competitive advantage. What they share, however, are basic operating principles of making values integral to the way they do business. By focusing on creating societal as well as shareholder value, they have built market share, improved risk management, enhanced innovation, strengthened consumer loyalty, and attracted the best talent.

Jackson and Nelson’s seven principles include Harness Innovation for the Public Good, as in the simple, low-cost water purifier from Proctor & Gamble that has the potential to save thousands of lives; Spread Economic Opportunity, exemplified by Marriott’s “Pathways to Independence” program that creates job opportunities for former welfare recipients and gives the company a competitive advantage in the marketplace for low-skilled employees; and Put People at the Center, a value practiced by Alcoa that reduced its lost workday injury rate by more than 90% since 1988.

This breakthrough guide on howcompanies can build trust and grow market share by making a difference opens the door to a new kind of capitalism, providing a wealth of infinitely useful and practical recommendations a company of any size can adapt.

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Product Details

  • ISBN-13: 9780385501637
  • Publisher: Doubleday Publishing
  • Publication date: 6/15/2004
  • Pages: 416
  • Product dimensions: 6.38 (w) x 9.50 (h) x 1.16 (d)

Meet the Author

IRA A. JACKSON is the former director of the Center for Business and Government at Harvard's Kennedy School of Government, and most recently was the first president of the Arthur M. Blank Family Foundation in Atlanta. Previously, he served as the Massachusetts commissioner of revenue under Michael Dukakis, and was an executive vice president at Bank Boston. JANE NELSON is director of Leadership and Strategy at the International Business Leaders Forum and a senior fellow and director of the Corporate Social Responsibility Initiative at Harvard's Kennedy School of Government. She is a former vice president at Citibank and worked in the secretary-general's office at the United Nations.

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Read an Excerpt

Chapter One

Capitalism Rules . . . But Needs New Rules

Never before in the 33 years of the World Economic Forum's history has the situation in the world been so fragile, as complex and as dangerous as this year. We feel that we are living in a new world--with new rules and new dangers--but certainly also with new opportunities. . . . Today we need a new, an enlarged concept of business leadership!

KLAUS SCHWAB, PRESIDENT, WORLD ECONOMIC FORUM, 2003

Over the past twelve years the context for doing business has changed almost beyond recognition. This rapid and unprecedented period of change has challenged even the best-laid plans and most creative corporate visions. Anyone who wants to understand the risks and opportunities of doing business in today's world and what they mean for tomorrow's competitive advantage, and in some cases survival, must understand our recent history. It has been extensively chronicled and analyzed elsewhere. Here we offer a very brief review.

Capitalism Triumphant

The spread of global capitalism seemed unstoppable in the early 1990s. It had torn down barriers, both virtual and real--the Iron Curtain and the Berlin Wall. It had decreased state ownership and removed trade restrictions. It had mobilized virtually every nation around a common pursuit: economic progress and wealth creation. It inspired entrepreneurs, pensioners, and small-town savings clubs. It shaped the hopes of young people from inner cities in America to rural communities in Zimbabwe.

In the United States, the engine of capitalism created more than twenty-two million jobs in less than ten years. By 2000, there were nearly five millionmillionaires and some three hundred billionaires. The financial wealth of Americans increased by an astonishing $3 trillion a year for the years 1998 to 2000. The Dow Jones Industrial Average appeared to have overcome the laws of gravity; it increased almost fourfold in less than ten years, moving from three thousand in April 1991 to eleven thousand in May 1999, having taken fifteen years to shift from two to three thousand between 1972 and 1987.

Elsewhere around the world, in the space of less than a decade, over three billion people moved from living in centrally planned economies to economies shaped, to a lesser or greater extent, by the efficiencies and vagaries of market forces.

The twin processes of privatization and liberalization facilitated a massive transfer of assets to the private sector and a dramatic increase in international capital flows. Between 1983 and 2000, for example, world market capitalization soared from about $3 trillion to over $35 trillion. Foreign exchange flows grew from $13 billion in 1973, to more than $1.5 trillion a day in 2000. Foreign direct investment increased from about $100 billion a year in the late 1980s to well over $800 billion by 1999. According to the United Nations, the number of transnational corporations almost doubled from 37,000 in 1990 to over 60,000 in 2001, with their foreign affiliates growing almost fivefold from 170,000 to 800,000. The size and reach of individual companies ballooned, and by the turn of the century the world's five largest corporations each had sales larger than the gross domestic products of over 180 of the world's nation-states. American companies accounted for about half of the world's largest 500 companies.

Global capitalism, and the private enterprises and entrepreneurs who were driving it, gained soaring profits and an unprecedented level of prominence, affluence, and influence.

As the end of the twentieth century approached, there seemed to be little doubt, at least in most corporate boardrooms and national capitals, that capitalism was triumphant. The message appeared to be clear:

Capitalism works. It is magnificently efficient. It performs at breakneck speed. It creates jobs, expands opportunities, and introduces new technologies. It gives people access to greater benefits, conveniences, and riches today than at any time in the history of civilization. Governments should get out of the way of the market and give capitalism a free rein. Shareholder value and self-interest reign. CEO pay may be high and growing higher relative to that of average workers, but as long as the stock market keeps soaring and company earnings keep growing at a dizzying rate, who are we to complain? Surely a rising tide will lift all boats!

The CEOs who were able to deliver ever-increasing quarterly earnings were lauded as the modern-day celebrities atop the pedestal of power and prestige in a new golden age of capitalism.

Yet, as the century came to an end, there were increasingly clear signs that all was not right. Media-grabbing antiglobalization protests dominated the World Trade Organization meeting in Seattle in 1999, and financial crises rocked Mexico, Asia, and Russia. Despite the benefits that globalization had created for numerous countries and companies, the social and environmental downsides were becoming more apparent. People started to question the excesses and the costs, and they turned their attention to the role of big business.

Capitalism Under Siege

In September 2000, Business Week asked an uncomfortable question on its cover: "Too Much Corporate Power?" It shared the following findings of a joint Business Week/Harris poll1:

*Over 70 percent of Americans surveyed said that business had too much power over too many aspects of their lives and too much political influence.

*Only 4 percent agreed that companies should have only one purpose--to make the most profit for their shareholders--and that their pursuit of that goal would be best for America in the long run. Of those polled, 95 percent agreed that American corporations should have more than one purpose and that they also owe something to their workers and the communities in which they operate.

*Only 14 percent felt that what was good for business was good for most Americans--less than half the proportion supporting the same view in 1996.

Business Week's journalists offered hard-hitting analysis of the growing disillusionment and distrust among ordinary Americans relating to excessive CEO pay; public revulsion over corporate bankrolling of politicians; concerns over the impacts of globalization; sweatshops; "in-your-face" marketing campaigns; commercialism in schools; low wages for high productivity; and high prices for poor products and services. The cover story concluded that "corporate executives would be wise to deal with the burden [of power and responsibility]--and take care to avoid the hubris that so often accompanies heady success. If they don't, a growing number of Americans stand ready to call them to account."

The time for that "accounting" has now arrived. In the span of less than three years, from 2000 to 2003, a number of political and economic events have turned the post-Cold War euphoria of global capitalism on its head.

The corporate governance crises in America and in other major cap-ital markets have been a critical factor in undermining trust in our economic system. For over ten years companies such as Enron and WorldCom epitomized the promise of the "New Economy" and the "New World Order." They captured the spirit of the age: high-tech innovation, risk-taking, global horizons, new business models, sophisticated financial engineering, and declining regulation. None of these is necessarily problematic. In fact, most are essential to building corporate competitiveness and national prosperity. For these companies and others, however, the fundamental principles of running a good, decent business seemingly got lost.

The diverse set of public and private "checks and balances" that make our system of capitalism effective were undermined and overwhelmed by a combination of complacency, hype, arrogance, greed, and lack of oversight. As Alan Greenspan, Federal Reserve Board chairman, has described it: "Lawyers, internal and external auditors, corporate boards, Wall Street security analysts, rating agencies, and large institutional holders of stock all failed for one reason or another to detect and blow the whistle on those who breached the level of trust essential to well-functioning markets. . . . An infectious greed seemed to grip much of our business community."2

Although corporate governance failures were a crucial catalyst, they were not the only series of events to challenge the triumph of global capitalism. Other crucial factors included the bursting of the dot-com bubble; the financial crisis in Argentina; slowing economic growth worldwide; the events of 9/11; the increased threat of international terrorism; the waging of war; increased international trade tension; growing scientific evidence of the dangers of global climate change and environmental decline; and rising antiglobalization sentiment and growing anticapitalism campaigns. These factors have put most business leaders and their companies on the defensive. And they have placed many companies, especially those with prominent brands and global reach, under a critical and unforgiving spotlight.

In a few short years the antiglobalization and anti capitalism message has gathered strength. It can be summarized in this way:

If left to its own the capitalist system is efficient but ruthless. It creates enormous wealth but can leave poverty and inequality in its wake. It increases productivity but discards employees. Capitalism powers the stock market but closes factories and abandons whole communities. It reduces consumer prices but lowers the wages of workers. It balances budgets but deprives governments of resources needed for investment. It offers access to the wonders of the World Wide Web but leaves millions behind in a new digital divide. It generates marvelous inventions but leaves environmental pollution in its wake. It democratizes information but marginalizes people. It speeds up the flow of goods, services, and money but creates increased volatility, vulnerability, and insecurity. Globalization creates unprecedented riches but widens the gap between those who have and get ahead and those who don't and are left farther and farther behind.

There are sound and empirically rigorous counterarguments to many of these negative perceptions about global capitalism. Despite its challenges, the system of global capitalism offers greater hope for the world than alternative models that have been tested and found seriously wanting. Open markets, liberalized trade, and integration into the global economy still offer poorer countries and communities their best hope of improved living standards. In many cases it is the lack of economic growth and investment, rather than growth and investment, that is a cause of poverty and exclusion. As Joseph Nye, dean of Harvard's Kennedy School of Government, has commented, "No poor country has ever become rich by isolating itself from global markets, although North Korea and Myanmar have impoverished themselves by doing so."3

At the same time, there are some uncomfortable truths and long-term threats raised by the diverse and increasingly international group of people and organizations who distrust big business and who question the merits of globalization. As with the corporate governance challenge, the onus is on the private sector to demonstrate that it can be part of the solution, rather than part of the problem. Far and away the vast majority of business leaders have operated with high standards of integrity, but this is not how much of the public sees it. The private sector must demonstrate that it is worthy of public trust and confidence. Companies need to show that they can work in partnership with governments and others to help make the process of globalization not only profitable, but also more equitable and more beneficial for more people, without destroying the world's environmental capacity to nurture future generations.

For many businesspeople these leadership challenges represent uncharted and choppy waters, but they cannot be ignored. Together, they represent a powerful and unprecedented collision of forces--what many corporate leaders are describing as the economic and political equivalent of a "perfect storm."

Business leaders need to face this "perfect storm" and navigate with a new compass. Despite the ongoing pressures of relentless competition, and the need to deliver short-term financial performance, no major company can ignore and fail to respond to the following threats to long-term corporate success and viability:

*The crisis of trust

*The crisis of inequality

*The crisis of sustainability

The following trends and statistics provide sobering but important reading for today's and tomorrow's leaders in business.

The Crisis of Trust

Two-thirds of Americans think that corporations make good products and compete well in the global economy, but only one-third feel that large corporations have ethical business practices. Just 26 percent believe that companies are straightforward and honest in their dealings with consumers and employees. These findings from a Business Week/Harris poll illustrate that Americans' trust in business is worryingly low.4 In an editorial on restoring trust in corporate America, Business Week commented, "To many critics, Corporate America's leaders seem shockingly out of touch, blind to the deterioration in public confidence. A seemingly endless stream of bad news alleging widespread management negligence and malfeasance is chipping away at the trust vital to a free-market system."5

The problem isn't confined to American business. The Financial Times, in June 2003, released another in a long line of opinion polls showing low levels of trust in British companies and the people who lead them. In an accompanying editorial it observed that "capitalism is a system that functions on trust. It can take many years to build a culture where there is confidence in the free operation of the market. . . . Yet that confidence can quickly be eroded by unchecked greed or a cavalier attitude to commitments."6

This decline in trust extends to many other countries. The World Economic Forum, in January 2003, released a major global public opinion survey that asked 34,000 people across forty-six countries to assess the trustworthiness of different institutions, including global companies and large domestic companies, "to operate in the best interests of our society."7 The survey found that not only are companies among the least trusted of any of the seventeen institutions tested, but there has been a significant and widespread decline in trust over the last two years in almost all the countries where tracking is available. More and more stakeholders are accusing big business of being untruthful, unfair, and unethical.

Some 85 million Americans invest in the stock market. After losing an estimated $7 trillion in accumulated wealth and witnessing their investment nest eggs squandered while corporate chieftains got away with millions, investors from Wall Street to Main Street are alienated and angry. They are fed up with unethical accounting practices, dishonest disclosure procedures, weak corporate governance structures, excessive executive compensation, threats to their pension funds, and analysts who offer conflicted advice and treat small investors with contempt. They are demanding that the Wizard of Oz come out from behind the curtain--transparent, accountable, ethical, and believable.

Among consumers, brand loyalty is low and cynicism about corporate claims and advertising is high, especially among the younger generation. They are demanding better product information and accountability from business, especially large companies.

Workers are tired of being told "you are the company's most valuable asset" when millions face the constant threat of unemployment, increasingly long hours, stressful working conditions, pressure to meet unrealistic goals, deceptive practices, and corporate cultures still rife with discrimination, despite a nod at legal compliance. They want to see more evidence that their management says what it does and does what it says. And ordinary citizens, too, are beginning to ask which companies they can trust. They are questioning the relationships between powerful corporations and political power brokers and focusing increased attention on corporate campaign contributions, corporate tax avoidance, and corporate lobbying.

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Table of Contents

Pt. 1 Doing business in a turbulent world
1 Capitalism rules ... but needs new rules 13
2 Building tomorrow's competitive advantage today 34
Pt. 2 Putting principles into practice : how companies are mastering the new rules of the game
Principle #1 Harness innovation for public good 59
Principle #2 Put people at the center 105
Principle #3 Spread economic opportunity 142
Principle #4 Engage in new alliances 184
Principle #5 Be performance-driven in everything 222
Principle #6 Practice superior governance 259
Principle #7 Pursue purpose beyond profit 299
Conclusion : building wealth for companies, countries, and communities 337
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